The influence of household saving motives on the propensity to save and portfolio allocation decisions

Ahmad Mahdzan, Nurul Shahnaz (2010) The influence of household saving motives on the propensity to save and portfolio allocation decisions. PhD thesis, University of Nottingham.

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Abstract

The objective of this study is to examine the motives that drive the propensity of households to save and households' portfolio allocation decisions. This interest has been spurred by the issue of low personal saving rates that has been observed across the globe over the past two decades. In addition, the perplexities concerning portfolio allocation choices despite rapid innovations of financial products warrants the need for further investigation on household's asset allocation decisions.

Motivated by the above phenomena, this study was conducted with three main objectives. First, the study sought to identify the factors that are instrumental to the formation of household's saving motives, by examining households' socio-demographic and behavioural factors that influence their motivations to save. Second, the study aimed to determine the factors that influence the household's propensity to save. Third, the study targeted to evaluate the factors that impact the choice of assets that households save in, by examining their preferences in regards to low-risk assets, risky assets, and life insurance.

The 2004 U.S. Survey of Consumer Finances (SCF), which a government sponsored triennial cross-section survey on the financial situation of American families, was chosen as an empirical basis to address the three research objectives mentioned above. Various econometric tools were used to analyze the relationships under investigation.

Results indicate that all categories of saving motives, namely the life-cycle, precautionary, bequest and profit motives are significant determinants of the propensity to save. This suggests that planned saving are relevant in the household's saving decisions. Nonetheless, results also show that unplanned saving, stemming from the household's capabilities and opportunities to save, is a stronger determinant of household saving. Saving motivations are also found to be related to portfolio allocation choice. In particular, life-cycle and profit motives significantly impinged on the decision to own risky assets, while life-cycle and bequest motives strongly influenced the probability of owning life insurance. Meanwhile, results indicate that age and income are salient factors influencing the household's formation of saving motives, their propensity to save, and portfolio allocation choices.

Item Type: Thesis (University of Nottingham only) (PhD)
Supervisors: Devlin, J.F.
Diacon, S.R.
Keywords: Households, saving and investment, psychological aspects
Subjects: H Social sciences > HB Economic theory
Faculties/Schools: UK Campuses > Faculty of Social Sciences, Law and Education > Nottingham University Business School
Item ID: 13261
Depositing User: EP, Services
Date Deposited: 09 May 2013 08:49
Last Modified: 26 Oct 2016 13:23
URI: http://eprints.nottingham.ac.uk/id/eprint/13261

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